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Mindset: Think twice before you go external for senior appointments

Over the last decade organisations have become increasingly reliant on external hires to meet talent needs.   Bringing in a top performer from another company is widely considered as an effective way to turnaround performance or quickly plug a succession gap. The problem is, research shows that external hires typically perform worse than internal movers, and yet get paid substantially more.[1]  External hires also have much higher rates of exit, and you have to wonder to what extent these increasing inflows and outflows are blurring the competitive difference between organisations.[2]

The assumption that luring a superstar away from a competitor could somehow transform an organisation’s performance is far from accurate.[3] Accumulating evidence suggests that the lone star is a myth; effective performance is context-dependent. Without addressing the performance environment, investments in hiring top talent will be wasted and a potential high-performer’s abilities under-utilised.[4]  In other words, it’s not safe to assume that if you lure a high performer out of a competitor organisation, they’ll automatically succeed in yours.  We wouldn’t make other significant investment decisions on the basis of assumptions alone, you’d look for data to assess the risks. So when it comes to critical talent decisions, obtain a robust psychological assessment of an individual’s suitability against the requirements of the new role and business context.

Internal promotion, on the other hand, fosters organisational memory, and sends a message to the rest of the organisation that hard work will be recognised and rewarded.  Plus, internals are already familiar with the company, its corporate culture, the people within it, and know how to ‘get things done around here’.  Research reveals that it takes three years for external hires’ performance to catch up with that of internal movers.[5]  In some environments that’s too long.  However, it does indicate that external hires aren’t necessarily less able than internals.  Instead, it highlights that they need more support to help them gain new knowledge, context-specific skills, and resources specific to the role or organisation more quickly.  We’ve previously written about the importance of ‘fastboarding’ to enable newcomers to reach their maximum potential contribution quickly. You can’t simply throw someone in and expect them to be as effective as they were in their last organisation, because chances are, they won’t be.

Perhaps the biggest problem with this over-reliance on external recruiting, highlighted by the current context of unprecedented technological and organisational change, is that the skills simply don’t exist in the external market.  Organisations are recognising the futility of wasting resources to engage in a war for talent when that talent doesn’t actually exist (or at least not in sufficient supply).  As a result, organisations now anticipate a greater focus on internal mobility and development[6] as a means of meeting resource needs.

Ultimately, talent management in the 21st century is not about determining whether you’re going to ‘build or buy’ – because you must do both.  Instead, it’s about deciphering what can be ‘built’ in-house through development and what must be ‘bought’ through external recruitment.  Given the difficulty of making accurate predictions in a rapidly changing environment, a combination of build and buy approaches is inevitable, with internal development more amenable to meeting predicable needs, and external hiring for meeting unpredicted demands.[7]  What’s clear is that organisations have to be more proactive in forecasting talent needs, and in identifying new approaches to close critical skills gaps. Ask yourself – are you biased towards over-valuing the unknown entity (external) and under-valuing the known (internal)?

At Kiddy we deliver high-impact executive assessment and leadership development with a robust yet commercial and pragmatic approach.  Our business psychologists support organisations to identify and build the leadership capability required to take their businesses successfully into the future.  To hear about how we can help you, please get in touch.

[1] Bidwell (2011). Paying More to Get Less: The Effects of External Hiring versus Internal Mobility. Administrative Science Quarterly, 56(3), 369–407; DeOrtentiis et al. (2018). Build or buy? The individual and unit-level performance of internally versus externally selected managers over time. Journal of Applied Psychology, 103(8), 916-928 [2] Boone et al. (2006). Top Management Team Composition and Organizational Ecology: A Nested Hierarchical Selection Theory of Team Reproduction and Organizational Diversity, Advances in Strategic Management, 23, 103–13. [3] Amankwah-Amoah et al. (2015). A question of top talent? The effects of lateral hiring in two emerging economies. The International Journal of Human Resource Management, 11, 1527-1546. [4] Groysberg & Abrahams (2006). Lift outs: how to acquire a high-functioning team. Harvard Business Review, 84, 133-40. [5] Bidwell 2011, Ibid [6] CIPD (2017), Resourcing and Talent Planning, Survey Report, CIPD. [7] Cappelli, P. (2008), Talent management for the twenty-first century, Harvard Business Review, 86(3), 74–81.

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